I am getting married soon and I am in grad school (I get paid a stipend and have a tuition scholarship). I have no retirement plans available to me. My fiancee will be starting her job soon and will have a matched 401k available a few months after. We have some wedding expenses on a 0% APR credit card (definitely planning to pay that off before the 0% is up, we always pay in full all our other cards and make more than the minimum on the 0% one). Other than that, we have some student loan debt, a small emergency fund, and some savings bonds for a down payment for a house a few years down the road.

What is the best way for us to get our married finances off to a great start? How do we decide how much goes to savings/retirement/debt? The 401k is in an annuity, so I'm not too sure about how that works, but I know we want to take advantage of the full match.

"so I'm not too sure about how that works" - these words are a red flag. I applaud your desire to get the match, but your first goal needs to be an understanding of the investment choices. I've never heard of a 401(k) only having an annuity option. A 403(b) (the plan used for teachers and some other government employees) typically is an annuity.
– JoeTaxpayer♦Jun 18 '12 at 2:48

We just don't have all the details yet...they will come when the job starts. That's why I'm not totally sure on that yet. I know it's a 401(k) though.
– scientificsJun 18 '12 at 3:05

@JoeTaxpayer Many 403(b) plans offer investments in a small set of mutual funds, with major categories represented, in addition to an annuity. Even TIAA/CREF, the granddaddy of them all, offers mutual funds, but whether a specific school district's plan or other government/non-profit employer's plan, allows investments in TIAA/CREF mutual funds is a different question. It is true, though, that some 403(b) plans require that, upon retirement, the employee cash in the mutual funds and purchase an annuity with the proceeds, but most permit rollover to a Traditional IRA (Roth IRA for Roth 403(b)).
– Dilip SarwateJun 18 '12 at 10:46

4 Answers
4

You can't pay off debt if you are spending more than you earn. Therefore, start a budget that you both work on at the same time, and both agree 100% with. Evaluate your progress on that budget on a regular basis.

From your question, you understand what your obligations are and you seem to manage money pretty well. Therefore your key to retirement is just the ticket you need.

As newlyweds, you both have to be VERY aware that the main reason a marriage fails in the US is money issues. Starting out with a groundwork where you both agree to your budget and can keep it will help you a lot in your upcoming life.

Then, for some details

Take any match the employer provides on the 401K.

Make sure you have $0 in long term debt.

If you have unsecured debt, setup your budget to aggressively remove it

If you debt is "cheap" like 2% interest on a student loan, pay it as agreed

Save up 6 months of your monthly living expenses as your emergency fund. (This is to be kept in a savings or checking account which earns basically nothing. Sorry.)

Fully fund a (Roth/Traditional) IRA for the both of you. ($10K / year)

FOR EXAMPLE: Start your IRA with Vanguard. Invest your money in the Star Fund.
Of course your actual investment goals, tolerance for risk and other factors will determine the best company and fund for you. If right now you just need a place to start, a Vangaurd Star Fund is a safe bet and a good starting point.

Feed it monthly. If you can't fully fund it right away (I still can't) add another percent of your pay every 6 months until you do.

(littleadv) The decision re Roth vs Traditional IRA should be made based on your current and potential future tax rate. Generally, if your current tax rate is lower than the rate you expect at your retirement - Roth makes sense. Otherwise, go with Traditional. Roth would also make sense when you cannot contribute to the Traditional due to the limitations on your income. Also, if you decide to go with Traditional IRA and your current tax rate goes down, you can convert from Traditional to Roth and utilize the lower tax rate that you'd have. Once you're Roth - you cannot go back.(/littleadv)

Save up money for your house, car, new business, monster truck or whatever.

Spend this money regularly, because if you are doing the other things, you are doing good with money and you should enjoy your life.

I still don't have all these things done, it is just my plan

If you still have all of your money accounted for, congrats. Feed your 401K to the max.

Sprinkle your charitable donations anywhere in the list where you feel it is important.

+1 as good a list as I've seen. Whether the Roth makes sense or stay pre-tax depends on other factors we don't have right now. And if house is a priority, not sure he's able to put more into retirement that the matched 401(k). But these are details, the list is great.
– JoeTaxpayer♦Jun 18 '12 at 4:35

+1 in general, but I'm opposed to the blanket "Go Roth" recommendation. You know nothing about their current or projected tax situation, why do you make such a recommendation? -1 for that.
– littleadvJun 18 '12 at 4:38

@littleadv - sure. But if they are asking about how to manage their money, chances that a normal IRA is a better deal is slim. You are right, I am just playing the odds. I highly respect your opinion and welcome your opposing answer. For that matter, edit my answer with details about the Roth v Traditional debate.
– MrChristerJun 18 '12 at 4:48

the answer shouldn't give the name of a fund family and a fund in the family. The selection of a fund depends on the other investment options they have, and their needs.
– mhoran_psprepJun 18 '12 at 10:16

I agree with the other answers here. You need to pay off your debts first, so that you can take the money you would have been spending on debt payments and make retirement contributions instead. The longer they hang around, the more you pay in interest and the more they are a risk to you. Imagine if you or your spouse were laid off, which is better scenario: having to pay for your necessities plus debts or your necessities alone? Just focus on one goal at a time, and you will do well.

And the best way for you and your new spouse is to have the same financial goals and a huge part of that agreeing on a budget each month and being flexible. Don't use it to control your spouse, you each have a vote. I have not used Vangaurd, but have heard good things about them. I would do some research before investing with them or anyone else for that matter.

What you want to find when it comes to investing is someone with the heart of a teacher, not a product peddler. If you have someone who is pushing financial products, without explaining (A) how they work, and (B) how they fit your situation, then RUN AWAY and find someone else who will do those two things.

What if they are 0% interest debts? Do you still feel that they should be paid off first rather than putting some money in retirement? Of course I have it budgeted to be paid off before the 0% is up.
– scientificsJun 19 '12 at 20:31

To me, it doesn't matter if it's 0%. Those offers typically aren't 0% when you think about it, as most charge some type of upfront fee of 5% or $50 (whichever is higher) on the balance transferred. You pay your interest up front and don't accrue any more over the next 12 months. So long as you don't miss a payment or have a late payment. At any rate, the faster you pay it off, the faster you can invest the maximum amount of money into retirement. Think about it like this, you will that much more to put into retirement the faster you get it paid off.
– WaddlerJun 20 '12 at 3:33

I would recommend taking a course together on effective communications, and I would also suggest taking a course on budgeting and family financial planning.

You need to be able to effectively communicate your financial plans and goals, your financial actions, and learn to both be honest and open with your partner. You also need to be certain that you come to an agreement.

The first step is to draft a budget that you both agree to follow. The following is a rough outline that you could use to begin. There are online budgeting tools, and a spreadsheet where you can track planned versus actuals may better inform your decisions. Depending upon your agreed priorities, you may adjust the following percentages,

Essentials (<50% of net income)

Rent/mortgage

Electricity

Gas

Water

Trash

Groceries

Transportation

Car Payment

Car Insurance

Fuel

Financial (>20%)

Save at least 10% of your income (pay yourself first)

Savings (Purposed) (ex: car, furniture, vacation, emergency)

Savings (long term)

Student Loan

Car Payment

Credit Cards

Lifestyle (<30%) - this is your discretionary income, where you spend on the things you want

Cellphone

Internet

Cable

Dining

Theater/Movies

netflix/prime/itunes

Shopping

Personal Items

Certain expense categories are large and deserve special advice. Try to limit your housing costs to 25% of your income, unless you live in a high-cost/rent area (where you might budget as high as 35%).

Limit your expenses for vehicles below 10% of income. And expensive vehicle might be budgeted (partly) from Lifestyle. Limiting your auto payment to 5% of your income may be a wise choice (when possible).

Some families spend $200-300/month on cable TV, and $200-300/month on cellphones. These are Lifestyle decisions, and those on constrained budgets might examine the value from those expenses against the benefit.

Dining out can be a budget buster, and those on constrained budgets might consider paying less for convenience, and preparing more meals at home. An average family might spend 8-10% of their income on food.